TaxTMI 
TaxTMI 
2026 (6) TMI 925
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....n-deduction of tax at source. The assessee is aggrieved by that disallowance. 2. The assessee has raised several grounds of appeal; however, issue in substance is that the learned CIT(A) erred in confirming the disallowance made by the learned Assessing Officer for non-deduction of tax at source. The assessee contends that, out of the disallowed amount, Rs.1.18 crores had been paid and the related TDS remitted to the Central Government before the due date for filing the return of income under section 139(1) of the Act. It further submits that a provision of Rs.0.21 crores was reversed in the immediately succeeding year, and that TDS on a further provision of Rs.0.66 crores was deducted and remitted in subsequent years; accordingly, those amounts ought to have been allowed in the relevant subsequent year of payment. The assessee also claims that the provision of Rs.1.5 crores made for offshore lawyers, which formed part of the disallowance, was not covered by section 40(a)(ia) of the Act as it related to non-residents. According to the assessee, payments to offshore lawyers did not attract any obligation to deduct tax at source under the India-Mauritius Double Taxation Avoidance ....
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....nd provisions aggregating to Rs.3.55 crores in its books for financial year 2013-14 without deducting tax at source. The Assessing Officer held that the assessee was required to deduct tax at source on these amounts and accordingly disallowed Rs.3.55 crores under section 40(a)(ia) of the Act in the assessment order dated 30 September 2016. 4. The assessee preferred an appeal before the learned CIT - A wherein the learned CIT - A confirmed the disallowance. 5. During the appellate proceedings, the learned authorized representative, Ms. Suman Lunkar, filed a 97-page paper book. The assessee relied on its audited financial statements for assessment year 2014-15 and on the submissions dated 26 September 2016 and 29 September 2016 filed before the learned Assessing Officer. The paper book also contained tax residency certificates and other relevant certificates relating to the foreign entities to whom payments had been made. The learned authorized representative first submitted that no tax was required to be deducted at source on year-end provisions. In support, she relied on the decision of the Hon'ble Gujarat High Court in Principal Commissioner of Income-tax v. Sanghi Infrastru....
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....ted that section 40(a)(ia) did not apply to such foreign payments. She also stated that, against a provision of Rs.100 lakhs, only Rs.8,821,545 was identifiable as payable to various service providers and the balance was an ad hoc provision on which no tax was required to be deducted. According to her, whenever bills were subsequently received and payments were made, tax was deducted at source at that stage. Finally, she submitted that the provision of Rs.10 lakhs made for Sapphire Professional Services in financial year 2013-14 was reversed in financial year 2014-15 and, therefore, no tax was deducted at source on that provision. 7. In view of the above facts, she submitted that the order passed by the learned CIT(A), without considering the merits of the case, was unsustainable in law. She further submitted that, in any event, the addition made by the learned Assessing Officer was also not sustainable. 8. The learned Departmental Representative strongly supported the order of the learned Assessing Officer. He submitted that, where the assessee had made provisions for payments to identified professionals, the nature of services and the quantum of expenditure were also clearl....
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....nts as contingent liabilities. He further submitted that, if the assessee now characterized them as contingent, the expenditure would in any event be disallowable under section 37(1) of the Act, and the provisions recorded in its audited books of account would become questionable. 11. He also submitted that the assessee maintained its books of account on the accrual basis in accordance with accepted accounting principles and applicable accounting standards. Having recorded the expenses on that basis, the assessee could not contend that the liabilities were contingent so that no tax was required to be deducted at source. 12. We have carefully considered the rival contentions and perused the orders of the lower authorities. The assessee admittedly made provisions aggregating to Rs.355 lakhs for various professional services as at 31 March 2014 without deducting tax at source. This included a provision of Rs.1.5 crores for offshore professional lawyers, on which no tax was deducted. In our view, insofar as the payments are related to resident professional service providers, the assessee was required to deduct tax at source under section 194J of the Act. The nature of the service....
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....nt was made on 22 September 2014 and that tax was deducted and deposited before the due date for filing the return of income under section 139(1) of the Act for assessment year 2014-15. Therefore, no disallowance could be made in respect of this payment. 16. In the case of AZB Partners, tax on Rs.9 lakhs was deducted and deposited with the Central Government on or before the due date for filing the return of income for assessment year 2014-15. Therefore, no disallowance is called for to that extent. However, tax on the further sum of Rs.622,068 was deposited after the due date for filing the return for assessment year 2014-15; accordingly, that amount is allowable as deduction in assessment year 2015-16. 17. With respect to the payment of Rs.14,239,905 to offshore lawyers, the assessee submitted that the amount was not chargeable to tax in India and, therefore, no obligation to deduct tax at source arose under section 195 of the Act. We agree with the learned authorized representative that the learned Assessing Officer and the learned CIT(A) did not examine this aspect, despite it having been raised before them. Accordingly, we restore the issue of disallowance relating to pa....